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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
(NO FEE REQUIRED)
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
For the transition period from to
Commission File Number 2-39458
ERIE FAMILY LIFE INSURANCE COMPANY
(Exact name of Company as specified in its charter)
Pennsylvania 25-1186315
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
100 Erie Insurance Place, Erie, Pennsylvania 16530
(Address of principal executive offices) (Zip code)
Company's telephone number, including area code (814) 870-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.40 par value
(Title of class)
Indicate by check mark whether the Company (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Company was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate the number of shares outstanding of each of the Company's classes of
common stock, as of the latest practicable date: 9,450,000 shares of Common
Stock outstanding on February 29, 2000.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Company's Annual Report to shareholders for the fiscal year
ended December 31, 1999 (the "Annual Report") are incorporated by reference into
Parts II and IV of this Form 10-K Report.
1
INDEX
ITEM NUMBER AND CAPTION PAGE
Part I
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Part II
Item 5. Market for the Registrant's Common Stock and Related
Shareholder Matters 8
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 7a. Quantitative and Qualitative Disclosures About Market Risk 8
Item 8. Financial Statements and Supplementary Data 8
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure 8
Part III
Item 10. Directors and Executive Officers of the Registrant 9
Item 11. Executive Compensation 13
Item 12. Security Ownership of Certain Beneficial Owners and
Management 20
Item 13. Certain Relationships and Related Transactions 22
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 23
2
PART I
ITEM 1. BUSINESS
Erie Family Life Insurance Company (hereinafter referred to as the
"Company" or "Erie Family Life") was incorporated in the Commonwealth of
Pennsylvania on May 23, 1967 and commenced business on September 1, 1967.
The Company is primarily engaged in the business of underwriting and
selling nonparticipating individual and group life insurance policies,
including universal life. Erie Family Life also sells individual and
group annuities. Erie Family Life's common stock is owned by Erie
Indemnity Company (21.6%) and by Erie Insurance Exchange (53.2%). The
remaining stock is held by the public, predominantly by directors, agents
and employees of Erie Indemnity Company.
Erie Indemnity Company is a Pennsylvania business corporation formed in
1925 to be the attorney-in-fact for Erie Insurance Exchange, a
Pennsylvania-domiciled reciprocal insurance exchange. The Erie Indemnity
Company's principal business activity consists of the management of the
Exchange. The Erie Indemnity Company also is engaged in the
property/casualty insurance business through its wholly owned
subsidiaries, Erie Insurance Company (Erie Insurance Co.), Erie Insurance
Company of New York (Erie NY) and Erie Insurance Property & Casualty
Company (Erie P&C) and through its management of Flagship City Insurance
Company (Flagship), a subsidiary of the Erie Insurance Exchange. Together
with the Erie Insurance Exchange, the Erie Indemnity Company and its
subsidiaries and affiliates, including Erie Family Life, operate
collectively under the name "Erie Insurance Group."
Products
The Company's portfolio of life insurance includes permanent life,
endowment and term policies, including whole life, mortgage and
decreasing term, group, and universal life insurance. In terms of face
value, new life business issued in 1999 had a ratio of 5:1 of term
insurance to whole life insurance coverage.
Life insurance premiums and annuity deposits have been the primary
sources of cash inflows for the Company.
Classes of Life Insurance
Percentage of Total Sales, Net of Reinsurance
For the year ended December 31,
Class 1999 1998 1997 1996 1995
----- ---- ---- ---- ---- ----
Ordinary Life (including Term,
Whole Life and Universal Life 93.7% 93.4% 93.3% 93.3% 91.8%
Group 6.3 6.6 6.7 6.7 8.2
------ ------ ------ ------ ------
100.0% 100.0% 100.0% 100.0% 100.0%
3
Certain elements of revenue and expense reflect the requirements of
Financial Accounting Standard (FAS) 97. FAS 97 prescribes a uniform
method by which life insurance companies record certain long-term
contracts, specifically annuities, universal life, and other interest
sensitive products. This method involves separating the premium income
into the "premium" portion (shown in revenue) which represents insurance
protection purchased, and the "deposit" portion, which represents funds
to be held at interest for future uses. Under this standard, the
"deposit" portion of the premium received is accounted for using methods
applicable to comparable "interest bearing obligations" of other types of
financial institutions.
The Erie Insurance Group affiliated property and casualty insurance
companies periodically purchase annuities from the Company in connection
with the structured settlement of claims. Structured settlement annuities
sold to affiliated property/casualty companies totaled $23,312,225,
$17,883,171 and $17,780,582 in 1999, 1998, and 1997, respectively. Also
included in the annuity deposits are annuity contracts purchased by the
Erie Insurance Group Retirement Plan for Employees. These annuity
contracts totaled $5,321,738 in 1999, $6,413,460 in 1998 and $1,992,060
in 1997.
Classes of Deposits
For the year ended December 31,
Class 1999 1998 1997 1996 1995
----- ---- ---- ---- ---- ----
Universal Life Deposit $11,792,172 $10,692,515 $10,733,738 $ 9,465,576 $ 8,490,667
Annuity Deposit 67,114,641 56,727,779 58,306,640 58,250,822 66,051,230
----------- ----------- ----------- ----------- -----------
$78,906,813 $67,420,294 $69,040,378 $67,716,398 $74,541,897
The Company reinsures a portion of its business under a number of
different reinsurance agreements. The primary purpose of this reinsurance
is to enable the Company to write a policy in an amount larger than the
Company is willing to assume for itself. The secondary purposes are to
receive commissions on the reinsurance ceded and in some instances to
participate in the profits of the reinsured business by way of an
"experience rating refund." The Company currently reinsures with other
insurance companies the portion of the insurance coverage above
acceptable retentions. The retention limits on an acceptable risk is
$300,000 on each individual life policy written.
Marketing
The Company markets its products through independent agents in ten
jurisdictions. The 1999 statutory direct premium revenue for those
jurisdictions is made up of: Pennsylvania (69.54%), Maryland (6.47%),
Virginia (5.60%), West Virginia (3.43%), Ohio (7.20%), Indiana (2.76%),
Tennessee (1.75%), North Carolina (2.84%), the District of Columbia
(.01%) and Illinois (.40%). The policies sold are evaluated by the
Company's Underwriting Department which selects or declines applicants
for insurance. Premium on policies which are accepted may be standard or
rated, depending on the nature of the risk.
4
Competition
The Company operates in a highly competitive industry which consists of
numerous stock and mutual life insurance companies. A large number of
established insurance companies compete in states in which the Company
transacts business and many of these companies offer more diversified
lines of insurance coverage and have substantially greater financial
resources than does the Company. Competition is based primarily on price,
product features, availability of insurance products and the financial
strength of the Company.
Federal legislative initiatives on financial services reform, begun in
1997, culminated in the enactment of Senate Bill 900, the Financial
Modernization Reform Act, which significantly changes the way insurance
companies, banks and securities firms are regulated. The elimination of
some regulatory barriers to banks entering the insurance market, privacy
initiatives concerning the consumer data held by financial institutions
and the interjection of federal government agencies into the
traditionally state-regulated insurance industry may materially change
the ground rules under which insurance products are marketed.
Additionally, current and proposed future federal measures may affect the
way the life insurance industry distributes, prices, and services their
products. These proposals may include possible changes to laws governing
the taxation of insurance companies and life insurance products.
In addition to competing insurance products from current and future
sources, the Company's interest sensitive products compete with other
available investment products including but not limited to common and
preferred stocks, bonds, mutual funds and other instruments.
Life Reserves
The Company establishes and maintains actuarial reserves to meet its
obligations on life insurance policies and annuities. These reserves are
amounts which, with additions from premiums to be received on outstanding
policies and with interest on such reserves compounded annually at
certain assumed rates, are calculated to be sufficient to meet policy
obligations at death or maturity in accordance with the mortality tables
employed when the policies are issued.
Reserves for life insurance and income-paying annuity future policy
benefits have been computed primarily by the net level premium method
with assumptions as to anticipated mortality, withdrawals, lapses and
investment yields. Deferred annuity future policy benefit liabilities
have been established at accumulated values without reduction for
surrender charges. Reserves for universal life and investment contracts
are based on the contract account balance, if future benefit payments in
excess of the account balance are not guaranteed, or the present value of
future benefit payments when such payments are guaranteed. Variations are
inherent in such calculations due to the estimates and assumptions
necessary in the calculations. Interest rate assumptions for non-interest
sensitive life insurance range from 3.5% to 4% on policies issued in 1980
and prior years and 6% to 7.25% on policies issued in 1981 and subsequent
years. Mortality and withdrawal assumptions are based on tables typically
used in the industry.
Annuities are subject to varying interest rates determined at the
discretion of the Company subject to certain minimums. During 1999,
deposits to individual annuities earned interest at rates ranging from 5%
to 5.75%. Management believes the fair value of annuity and universal
life deposits approximates the amounts recorded in the financial
statements, since these obligations are generally subject to fluctuating
interest rates.
Insurance Regulation
The Company is subject to supervision and regulation by the insurance
departments of the states in which it does business. Although the extent
of the regulation varies from state to state, generally the supervisory
agencies are vested with broad regulatory powers relating to the granting
and revocation of licenses to transact business, regulation of trade
practices, licensing of agents, approval of policy forms, deposits of
securities as for the benefits of policy owners, and investments and
maintenance of specified reserves and capital, all designed primarily for
the protection of policy owners. In accordance with the rules of the
National Association of Insurance Commissioners (NAIC), the Company is
examined periodically by one or more of the state supervisory agencies.
The latest such examination of the Company was conducted by the
Pennsylvania Insurance Department and covered the five years ended
December 31, 1995.
5
The Commonwealth of Pennsylvania follows the statutory accounting
practices minimum risk-based capital requirements on domestic insurance
companies that were developed by the NAIC. Companies below specific
trigger points or ratios are classified within certain levels, each of
which requires specified corrective action. The formulas for determining
the amount of risk-based capital specify various weighing factors that
are applied to financial balances or various levels of activity based on
the perceived degree of risk. These formulas determine a ratio of the
company's regulatory total adjusted capital to its authorized control
level risk-based capital, as defined by the NAIC.
The NAIC levels and ratios are as follows:
Ratio of Total Adjusted Capital to
NAIC Required Authorized Control Level Risk-Based
Regulatory Event Capital (Less Than or Equal to)
Company action level 2 (or 2.5 with negative trends)
Regulatory action level 1.5
Authorized control level 1
Mandatory control level .7
Erie Family Life has regulatory total adjusted capital of $128 million
and a ratio of total adjusted capital to authorized control level
risk-based capital of more than 5:1 at December 31, 1999. The Company's
ratios significantly exceed the minimum NAIC risk-based capital
requirements.
Employees
Services of 106 full-time Employees are provided through Erie Indemnity
Company. Five of the employees are officers. Employee expenses along with
other operating expenses are paid by the Erie Indemnity Company and
reimbursed by the Company on a monthly basis. None of the Employees are
covered by collective bargaining agreements and the Company believes its
Employee relations are good.
Other Data
The Company's Lapse Rate for 1999 was 8.0%.
Reinsurance Profitability - Not Applicable.
New Types of Insurance - Not Applicable.
Total Insurance In Force for the last five years Net of
Reinsurance was:
1999 - $13,031,595,000
1998 - $11,961,512,000
1997 - $10,754,141,000
1996 - $ 9,646,962,000
1995 - $ 8,370,940,000
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995: Statements contained herein expressing the beliefs of management and the
other statements which are not historical facts contained in this report, are
forward-looking statements that involve risks and uncertainties. These risks and
uncertainties include but are not limited to: legislative, judicial, and
regulatory changes, the impact of competitive products and pricing, product
development, geographic spread of risk, catastrophic events, better (or worse)
mortality rates and securities market fluctuations.
6
ITEM 2. PROPERTIES
The Company owns real property for investment purposes as provided in Schedule I
"Summary of Investments other than Investments in Related Parties." This
investment property is leased to the Erie Indemnity Company. Rental income for
1999 was $303,000. The executive and administrative offices of the Company are
located in the headquarters office of Erie Insurance Group in Erie,
Pennsylvania. The Company pays other members of the group an amount determined
by an arm's length agreement for office space and for the use of facilities,
equipment and services.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any material pending legal proceedings other than
ordinary routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted for a vote to shareholders during the fourth
quarter of 1999.
7
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The information set forth on page 29 of the Company's 1999 Annual Report is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information contained in "Selected Financial Data" on Page 21 of the
Company's 1999 Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATION
The information set forth on pages 22 through 28 of the Company's 1999 Annual
Report is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth on page 27 of the Company's 1999 Annual Report is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The 1999 Financial Statements and the Company's Independent Auditors' Report on
pages 30 through 43 of the Company's 1999 Annual Report are incorporated herein
by reference, as is the unaudited information set forth in the Notes to the
Financial Statements under the caption "Quarterly Results of Operations
(Unaudited)" on pages 42 through 43.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
8
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Present Principal Position with Erie
Name and Age Family Life and Other Material Positions
as of 04/01/00 Held During the Last Five Years
Peter B. Bartlett 1,3C,4,5 Director since 1996. Partner, Brown Brothers Harriman & Co. since 1974; Director--the
66 Company, Erie Insurance Company and Erie Indemnity Company, Attorney-in-Fact
for Erie Insurance Exchange and Kennametal, Inc.
Samuel P. Black, III 2,4,5 Director since 1997. President, Treasurer and Secretary, Samuel P. Black & Associates,
58 Inc.--insurance agency; Director--the Company, Erie Insurance Company, Flagship City
Insurance Company, Erie Insurance Property & Casualty Company and Erie Indemnity
Company, Attorney-in-Fact for Erie Insurance Exchange.
J. Ralph Borneman, Jr. 3,4 Director since 1992. President and Chief Executive Officer, Body-Borneman Associates,
61 Inc., insurance agency. President, Body-Borneman, Ltd. and Body-Borneman, Inc.,
insurance agencies. Director--the Company, Erie Insurance Company, Erie Indemnity Company,
Attorney-in-Fact for Erie Insurance Exchange, Erie Insurance Company of New York and
National Penn Bancshares.
John J. Brinling, Jr. Executive Vice President of the Company since December 1990. Division Office 1984-present.
53
Robert H. Dreyer Senior Vice President of the Company since 1990. Chief Actuary 1983-Present.
62
Philip A. Garcia Executive Vice President and Chief Financial Officer of the Company, Erie Insurance
43 Company, Erie Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange,
Flagship City Insurance Company, Erie Insurance Property & Casualty Company and Erie
Insurance Company of New York since October 1997. Senior Vice President and Controller
1993 - 1997. Director--Flagship City Insurance Company, Erie Insurance Property &
Casualty Company and Erie Insurance Company of New York.
1 Member of Executive Committee
2 Member of Audit Committee
3 Member of Executive Compensation Committee
4 Member of Nominating Committee
5 Member of Investment Committee
C Committee Chairman
9
Present Principal Position with Erie
Name and Age Family Life and Other Material Positions
as of 04/01/00 Held During the Last Five Years
Patricia A. Goldman 2,4C Director since 1996. Retired; Senior Vice President for Communications, USAir, Inc.
58 1988 - 1994; Director--the Company, Erie Insurance Company, Erie Indemnity Company,
Attorney-in-Fact for Erie Insurance Exchange and Crown Central Petroleum Company.
Susan Hirt Hagen 1,* Director since 1980. Managing Partner, Hagen, Herr & Peppin, Group Relations Consultants
64 since 1990; Director--the Company, Erie Insurance Company and Erie Indemnity Company,
Attorney-in-Fact for Erie Insurance Exchange, since 1980; Director--Erie Insurance
Property & Casualty Company, Erie Insurance Company of New York, and Flagship City
Insurance Company since 1995.
F. William Hirt 1C,* Director since 1967. Chairman of the Board of the Company, Erie Insurance Company, Erie
74 Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange, Erie Insurance
Property & Casualty Company and Flagship City Insurance Company since September 1993;
Chairman of the Board of Erie Insurance Company of New York since April 1994. Chairman of
the Executive Committee of the Company and the Erie Indemnity Company, Attorney-in-Fact
for Erie Insurance Exchange since November 1990; Interim President and Chief Executive
Officer of the Company, Erie Indemnity Company, Attorney-in-Fact for Erie Insurance
Exchange, Erie Insurance Company, Erie Insurance Property & Casualty Company, Flagship
City Insurance Company and Erie Insurance Company of New York from January 1, 1996 to
February 12, 1996; Chairman of the Board, Chief Executive Officer and Chairman of the
Executive Committee of the Company, Erie Indemnity Company, Attorney-in-Fact for Erie
Insurance Exchange and Erie Insurance Company for more than five years prior thereto;
Director--the Company, Erie Insurance Company, Flagship City Insurance Company, Erie
Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange, Erie Insurance
Property & Casualty Company and Erie Insurance Company of New York.
Gwendolyn S. King 4 Director since 1999. Retired; Senior Vice President for Corporate and Public Affairs,
60 PECO Energy Company 1992 - 1998; Director - the Company, Erie Insurance Company and Erie
Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange, Lockheed Martin Corp.,
Monsanto Company and Marsh & McLennan Companies.
Martin J. Lippert 2 Director since 1999. Vice Chairman, Executive Vice President and Chief Information Officer
40 of Systems and Technology, Royal Bank of Canada 1997 - Present; Executive Vice President,
Mellon Bank 1995 - 1997; Director - the Company, Erie Insurance Company and Erie
Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange.
1 Member of Executive Committee
2 Member of Audit Committee
4 Member of Nominating Committee
* F. William Hirt is the brother of Susan Hirt Hagen.
C Committee Chairman
10
Present Principal Position with Erie
Name and Age Family Life and Other Material Positions
as of 04/01/00 Held During the Last Five Years
Stephen A. Milne 1, 5 President, Chief Executive Officer and Director of the Company, Erie Indemnity Company,
51 Attorney-in-Fact for Erie Insurance Exchange, and Erie Insurance Company since
February 12, 1996. President and Chief Executive Officer of the Company, Erie Insurance
Company, Erie Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange, Flagship
City Insurance Company, Erie Insurance Property & Casualty Company and Erie Insurance
Company of New York since 1996; Executive Vice President of the Erie Insurance Company,
Erie Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange, Flagship City
Insurance Company, Erie Insurance Property & Casualty Company and Erie Insurance Company
of New York 1994 - 1996. Director--Erie Insurance Company, Erie Indemnity Company,
Attorney-in-Fact for Erie Insurance Exchange and Erie Insurance Company of New York,
Flagship City Insurance Company and Erie Insurance Property & Casualty Company.
Timothy G. NeCastro Senior Vice President and Controller of the Company, Erie Insurance Company, Erie
39 Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange, Flagship City Insurance
Company, Erie Insurance Property & Casualty Company and Erie Insurance Company of New York
since 1997. Department Manager - Internal Audit 1996 - 1997.
John M. Petersen 1 Director since 1980. Retired; President and Chief Executive Officer of the Company, Erie
71 Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange, Erie Insurance Company,
Flagship City Insurance Company and Erie Insurance Property & Casualty Company 1993 -
1995 and Erie Insurance Company of New York 1994 - 1995; President, Treasurer and Chief
Financial Officer of the Erie Indemnity Company, Attorney-in-Fact for the Erie Insurance
Exchange, Erie Insurance Company and Erie Family Life Insurance Company 1990 - 1993, and
of Flagship City Insurance Company and Erie Insurance Property & Casualty Company
since 1992 and 1993, respectively, to September 1993; President, Treasurer and Chief
Financial Officer of the Company and Executive Vice President, Treasurer and Chief
Financial Officer of the Erie Indemnity Company, Attorney-in-Fact for the Erie
Insurance Exchange and Erie Insurance Company for more than five years prior thereto;
Director--the Company, Erie Insurance Company, Flagship City Insurance Company, Erie
Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange, Erie Insurance
Property & Casualty Company, Erie Insurance Company of New York, and Spectrum Control.
1 Member of Executive Committee
5 Member of Investment Committee
11
Present Principal Position with Erie
Name and Age Family Life and Other Material Positions
as of 04/01/00 Held During the Last Five Years
Jan R. Van Gorder 1 Director since 1990. Senior Executive Vice President, Secretary and General Counsel of
52 the Company, Erie Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange,
and Erie Insurance Company since 1990 and of Flagship City Insurance Company and Erie
Insurance Property & Casualty Company since 1992 and 1993, respectively and of Erie
Insurance Company of New York since 1994. Senior Vice President, Secretary and General
Counsel of the Company, Erie Insurance Company and Erie Indemnity Company,
Attorney-in-Fact for Erie Insurance Exchange for more than five years prior thereto;
Director--the Company, Erie Insurance Company, Flagship City Insurance Company, Erie
Insurance Property & Casualty Company, Erie Insurance Company of New York and Erie
Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange.
Harry H. Weil 2C,3,5 Director since 1995. Retired; Reed, Smith, Shaw & McClay, Attorneys, since 1998, Partner
66 1969 to 1997, Associate 1964 to 1969; Director--the Company, Erie Indemnity Company,
Attorney-in-Fact for Erie Insurance Exchange, Erie Insurance Company and Calgon Carbon
Corporation.
Douglas F. Ziegler Senior Vice President, Treasurer and Chief Investment Officer of the Company since 1993.
49 Senior Vice President, Treasurer and Chief Investment Officer of the Erie
Insurance Company, Erie Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange,
Flagship City Insurance Company and Erie Insurance Property & Casualty Company and Erie
Insurance Company of New York. Director--Erie Insurance Company of New York.
Robert C. Wilburn 3 Director since 1999. Distinguished Service Professor, Carnegie Mellon University since
56 1999; Retired, President and Chief Executive Officer, Colonial Williamsburg Foundation,
1992 - 1999; Director - the Company, Erie Insurance Company and Erie Indemnity Company,
Attorney-in-Fact for Erie Insurance Exchange.
1 Member of Executive Committee
2 Member of Audit Committee
3 Member of Executive Compensation Committee
5 Member of Investment Committee
C Committee Chairman
12
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The Company is a member of an insurance holding company system pursuant to
Pennsylvania law under which insurance companies are required to have
nominating, audit and executive compensation committees composed solely of
directors who are not officers, employees or controlling shareholders of the
Company or any entity controlling the Company. Insurance companies can satisfy
this requirement if the insurance company is controlled by an insurer or a
publicly held corporation that has committees that comply with this requirement.
Erie Indemnity Company, holder of 21.6% of the Company's stock directly and
53.2% of the Company's stock as attorney-in-fact for Erie Insurance Exchange,
has committees which meet these requirements.
The following table sets forth the compensation during each of the three fiscal
years ended December 31, 1999, 1998, and 1997, paid to the Chief Executive
Officer of the Company and the four other most highly compensated executive
officers of the Company during 1999 for services rendered in all capacities to
the Company, Erie Indemnity Company, Erie Insurance Exchange (the "Exchange")
and their subsidiaries and affiliates.
Annual Compensation
Name and Other Annual All Other
Principal Position Year Salary Bonus(1) Compensation Compensation(2)
Stephen A. Milne 1999 $633,600 $495,201 $2,595 $64,649
President and Chief 1998 587,892 436,683 2,924 66,051
Executive Officer 1997 539,462 173,989 1,722 66,219
Jan R. Van Gorder 1999 $335,482 $150,653 $2,614 $26,492
Senior Executive Vice 1998 321,032 142,340 3,439 27,887
President, Secretary 1997 321,032 102,761 2,976 26,263
& General Counsel
Philip A. Garcia 1999 $244,720 $119,302 $763 $13,475
Executive Vice 1998 224,040 97,641 779 20,677
President & Chief 1997 160,703 58,555 572 4,470
Financial Officer
John J. Brinling, 1999 $238,168 $101,575 $2,454 $24,875
Jr., Executive 1998 224,686 102,132 3,279 25,731
Vice President of 1997 214,395 68,166 2,835 27,209
EFL
Jeffrey A. Ludrof 1999 $216,432 $95,769 $76 $13,063
Executive Vice 1998 171,019 74,860 -0- 5,444
President 1997 159,831 -0- -0- 3,581
(1) The amounts indicated in the bonus column above represent amounts earned
by the named executives during 1999 under the Company's Annual Incentive
Plan. The purpose of the Annual Incentive Plan is to promote the best
interests of the Erie Insurance Exchange while enhancing shareholder
value of the Company by basing a portion of selected employees'
compensation on the performance of such employee and the Company.
Performance measures are established by the Executive Compensation
Committee based on the attainment of individual performance goals and the
Company's financial goals compared to a selected peer group. The amounts
indicated also include reimbursement of club dues for Mr. Milne in the
amount of $56,912 and a special merit bonus of $90,662 in addition to
reimbursement for other minor perquisites. For the other named
executives, the amounts indicated include reimbursements for minor
perquisites in the amounts of $10,192, $16,794, $3,804 and $7,985 for
Messrs. Van Gorder, Garcia, Brinling, and Ludrof, respectively.
13
(2) Amounts indicated in the "Other Annual Compensation" column include the
taxable value of group term life insurance in excess of $50,000 and the
associated tax reimbursement for the named executive officers. The
amounts exclude Long-Term Incentive Plan benefits awarded in February,
2000. (See Long-Term Incentive Plan Awards in Last Fiscal Year table ).
(3) Amounts shown include matching contributions made by the Company pursuant
to the Company's Employee Savings Plan, premiums paid by the Company on
behalf of the named individuals on the split dollar plan insurance
policies and miscellaneous expense reimbursements. For the year 1999,
contributions made to the Employee Savings Plan amounted to $14,308,
$9,084, $6,461, $7,145 and $6,365, on behalf of Messrs. Milne, Van
Gorder, Garcia, Brinling and Ludrof, respectively. For the year 1998,
contributions made to the Employee Savings Plan amounted to $15,507,
$10,391, $6,559, $7,911 and $5,444 on behalf of Messrs. Milne, Van
Gorder, Garcia, Brinling and Ludrof, respectively. For the year 1997,
contributions made to the Employee Savings Plan amounted to $12,194,
$8,676, $4,470, $6,432 and $3,581 on behalf of Messrs. Milne, Van Gorder,
Garcia, Brinling and Ludrof, respectively. Premiums paid during 1999 for
split dollar life insurance policies for Messrs. Milne, Van Gorder,
Garcia, Brinling and Ludrof, respectively, were as follows: $50,341,
$17,408, $7,014, $17,730 and $6,698. Premiums paid during 1998 for split
dollar life insurance policies for Messrs. Milne, Van Gorder, Garcia,
Brinling and Ludrof, respectively, were as follows: $50,544, $17,496,
$14,118, $17,820 and $-0-. Premiums paid during 1997 for split dollar
life insurance policies for Messrs. Milne, Van Gorder, Garcia, Brinling
and Ludrof, respectively, were as follows: $51,531, $17,587, $-0-,
$17,700 and $-0-. The Company is entitled to recover the premiums from
any proceeds paid on such split dollar life insurance policies and has
retained a collateral interest in each policy to the extent of the
premiums paid with respect to such policies. For the year 1999, no
miscellaneous expense reimbursements were incurred for Messrs. Milne, Van
Gorder, Garcia, Brinling and Ludrof. For the year 1998, no miscellaneous
expense reimbursements were incurred for Messrs. Milne, Van Gorder,
Garcia, Brinling and Ludrof. For the year 1997, miscellaneous expenses
reimbursements amounted to $2,494, $-0-, $3,077, $-0- and $-0- for
Messrs. Milne, Van Gorder, Garcia, Brinling and Ludrof, respectively.
Agreements with Executive Officers
The Company has entered into employment agreements with the following
senior executive officers of the Company: Stephen A. Milne, President and
Chief Executive Officer of the Company; Jan R. Van Gorder, Senior Executive
Vice President, Secretary and General Counsel of the Company; Philip A.
Garcia, Executive Vice President and Chief Financial Officer of the
Company; Jeffrey A. Ludrof, Executive Vice President of the Company and
John J. Brinling, Jr., Executive Vice President of EFL. At a meeting of the
Board of Directors held on December 14, 1999, the Board of Directors
extended the term of each executive officer's employment agreement for one
year. The employment agreements have the following principal terms:
(a) A four-year term for Mr. Milne, expiring in December 2003, and for the
other executives a two-year term expiring in December 2001, unless the
agreement is theretofore terminated in accordance with its terms, with
or without cause, or due to the disability or death of the officer or
notice of nonrenewal is given by the Company or the executive 30 days
before any anniversary date;
(b) A minimum annual base salary at least equal to the executive's annual
base salary at the time the agreement was executed, subject to periodic
review to reflect the executive's performance and responsibilities,
competitive compensation levels and the impact of inflation;
(c) The eligibility of the executive under the Company's incentive
compensation programs and employee benefit plans;
(d) The establishment of the terms and conditions upon which the
executive's employment may be terminated by the Company and the
compensation of the executive in such circumstances. The agreements
provide generally, among other things, that if the employment of an
executive is terminated without Cause (as defined in the agreement) by
the Company or by the executive for Good Reason (as defined in the
agreement) then the executive shall be entitled to receive: (i) an
amount equal to the sum of three times the executive's highest annual
14
base salary during the preceding three years plus an amount equal to
three times the total of the executive's highest award during the
preceding three years under the Company's Annual Incentive Plan; (ii)
any award or other compensation to which the executive is entitled
under the Company's Long-Term Incentive Plan; (iii) continuing
participation in any employee benefit plans for a period of three
years following termination to the extent the executive and his
dependents were eligible to participate in such programs immediately
prior to the executive's termination; and (iv) immediate vesting and
nonforfeitability of accrued benefits under the Company's Supplemental
Retirement Plan for Certain Members of the Erie Insurance Group
Retirement Plan for Employees ("Supplemental Employee Retirement
Plan");
(e) Provisions relating to confidentiality and nondisclosure following an
executive's termination; and
(f) An agreement by the executive not to compete with the Company for a
period of one year following his termination, unless his termination
was without Cause.
Stock Options and Stock Appreciation Rights
The Company does not have a stock option plan, nor has it ever granted any stock
option or stock appreciation right to any of the persons named in the Summary
Compensation Table.
Long-Term Incentive Plan
The Company has established a Long-Term Incentive Plan that is designed to
enhance the growth and profitability of the Company by providing the incentive
of long-term rewards to key employees who are capable of having a significant
impact on the performance of the Company; to attract and retain employees of
outstanding competence and ability and to further align the interests of such
employees with those of the shareholders of the Company. The Plan was approved
by shareholders in 1997 as a performance-based plan under the Internal Revenue
Code of 1986, as amended (the Code). Each of the named executives has been
granted awards of phantom share units under the Company's Long-Term Incentive
Plan based upon a target award calculated as a percentage of the executive's
base salary. The total value of any phantom share units will be determined at
the end of the performance period based upon the growth in the Company's
retained earnings. Each executive will then be entitled to receive restricted
shares of Class A Common Stock of the Erie Indemnity Company equal to the dollar
value of the phantom share units at the end of the performance period. The
vesting period for the restricted shares of Class A Common Stock issued to each
executive is three years after the end of the performance period. If an
executive ceases to be an employee prior to the end of the performance period,
the executive forfeits all phantom share units awarded. If an executive ceases
to be an employee prior to the end of the vesting period, the executive forfeits
all unvested restricted shares previously granted. The following table sets
forth target awards granted to the Company's five highest paid executive
officers (i) for the three-year performance period 1999 through 2001, (ii) for
the three-year performance period of 1998 through 2000 and (iii) for the
three-year performance period of 1997 through 1999.
15
LONG-TERM INCENTIVE PLAN
AWARDS IN LAST FISCAL YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
Name Number of Shares, Performance Estimated Future Payouts
Units or Other or Other Period Under Non-Stock
Rights (#) Until Maturation Price-Based Plans
or Payout
- ------------------------------------------------------------------------------------------------------------------------------------
Phantom Share Units Threshold Target Maximum
- ------------------------------------------------------------------------------------------------------------------------------------
Milne, S. 45,656 1997-1999 -0- $188,812 (1)
76,286 1998-2000 -0- $377,623 (1)
79,863 1999-2001 -0- $420,000 (1)
Van Gorder, J. 27,170 1997-1999 -0- $112,361 (1)
22,699 1998-2000 -0- $112,361 (1)
33,574 1999-2001 -0- $176,568 (1)
Garcia, P. 12,668 1997-1999 -0- $ 52,390 (1)
14,155 1998-2000 -0- $ 70,070 (1)
24,054 1999-2001 -0- $126,500 (1)
Brinling, J. 18,145 1997-1999 -0- $ 75,038 (1)
15,159 1998-2000 -0- $ 75,038 (1)
23,767 1999-2001 -0- $124,992 (1)
Ludrof, J. 13,493 1997-1999 -0- $ 55,801 (1)
12,062 1998-2000 -0- $ 59,707 (1)
23,673 1999-2001 -0- $124,498 (1)
(1) There is no maximum payout limitation for a specific performance
period. However, the maximum value of phantom share units that may be
earned by any named executive in any year shall not exceed $500,000.
16
Pension Plan
The following table sets forth the estimated total annual benefits payable upon
retirement at age 65 under the Erie Insurance Group Retirement Plan for
Employees and the Supplemental Employee Retirement Plan collectively, (the
"Retirement Plans").
PENSION PLAN TABLE
Years of Service
Remuneration 15 20 25 30 35
- --------------------------------------------------------------------------------
$ 150,000 $ 45,000 $ 60,000 $ 75,000 $ 90,000 $ 90,000
200,000 60,000 80,000 100,000 120,000 120,000
250,000 75,000 100,000 125,000 150,000 150,000
300,000 90,000 120,000 150,000 180,000 180,000
350,000 105,000 140,000 175,000 210,000 210,000
400,000 120,000 160,000 200,000 240,000 240,000
450,000 135,000 180,000 225,000 270,000 270,000
500,000 150,000 200,000 250,000 300,000 300,000
550,000 165,000 220,000 275,000 330,000 330,000
600,000 180,000 240,000 300,000 360,000 360,000
650,000 195,000 260,000 325,000 390,000 390,000
700,000 210,000 280,000 350,000 420,000 420,000
750,000 225,000 300,000 375,000 450,000 450,000
800,000 240,000 320,000 400,000 480,000 480,000
The compensation covered by the Retirement Plans is the base salary reported in
the Summary Compensation Table.
Under the Retirement Plans, credited years of service is capped at 30 years.
Credited years of service for each of the individuals named in the Summary
Compensation Table is as follows: Stephen A. Milne - 23 years, Jan R. Van
Gorder - 19 years, John J. Brinling, Jr. - 30 years, Philip A. Garcia - 19 years
and Jeffrey A. Ludrof - 19 years.
The benefits under Retirement Plans are computed on the basis of straight-life
annuity amounts and a life annuity with a ten-year certain benefit. The benefits
listed in the Pension Plan Table are not subject to deduction for Social
Security or other offset amounts. The information in the foregoing table does
not reflect certain limitations imposed by the Code. Beginning in 1994, the Code
prohibits the inclusion of earnings in excess of $150,000 per year (adjusted
periodically for cost of living increases) in the average earnings used to
calculate benefits. The Code also limits the maximum annual pension (currently
$135,000, but adjusted periodically for cost of living increases) that can be
paid to each eligible employee. A Supplemental Employee Retirement Plan for
senior management is in effect which provides benefits in excess of the earnings
limitations imposed by the Code similar to those provided to all other full time
employees as if the Code limitations were not in effect. Those benefits are
incorporated into the Pension Plan Table.
Director Compensation
The annual retainer for the directors of all members of the Group, including the
Company, is $25,000, plus $1,500 for each meeting attended and $1,500 for each
committee meeting attended plus an additional $2,000 per year for each committee
chairperson. The directors are also reimbursed for their expenses incurred in
attending meetings. Officers of the Company who serve as directors are not
compensated for attendance at meetings of the Board of Directors and its
committees. The Erie Indemnity Company also has a deferred compensation plan for
certain directors of the Company. The Company receives an allocated portion of
its share of these charges. The total amount allocated to the Company in 1999
for directors fees and other charges was $109,189. Director Petersen also is
compensated pursuant to a consulting arrangement as disclosed in Item 13.
17
Compensation Committee Interlocks and Insider Participation
The Executive Compensation Committee (the "Compensation Committee") of the
Company presently consists of Peter B. Bartlett, Chairman, J. Ralph Borneman,
Jr., Harry H. Weil and Robert C. Wilburn. No member of the Compensation
Committee is a former or current officer or employee of the Company or any of
its affiliates1. Furthermore, no executive officer of the Company serves as
a member of a compensation committee of another entity, one of whose executive
officers serves on the Compensation Committee, or as a director of the Company,
nor does any executive officer of the Company serve as a director of another
entity, one of whose executive officers serves on the Compensation Committee.
Mr. Borneman is the President and a principal shareholder of Body-Borneman
Associates, Inc., Body-Borneman, Inc. and Body-Borneman, Ltd., all of which
are independent insurance agencies representing a number of insurers, including
the Company and its insurance affiliates.
- -----------------------------------------
1. J. Ralph Borneman, Jr. is an officer and a principal shareholder of
the insurance agencies named herein which receive commissions in the ordinary
course of business from the Company. Mr. Borneman does not qualify as an outside
director for purposes of approving performance-based incentive plans as
qualified under section 162(m) of the Code. Mr. Borneman has excused himself
from voting on such plans as a member of the Compensation Committee.
- -----------------------------------------
Report of the Executive Compensation Committee of the Company
The Compensation Committee is charged with the duty of recommending to the Board
of Directors the compensation of the three highest paid officers of the Company
and such other officers as are determined by the Board of Directors;
recommending to the Board of Directors all forms of bonus compensation,
including incentive programs, that would be appropriate for the Company and to
undertake such other responsibilities as may be delegated to the Compensation
Committee by the Board of Directors. The Board of Directors has authorized the
Compensation Committee to consider the compensation of the four highest paid
officers, including the Chief Executive Officer. The Compensation Committee is
currently composed of four directors who are not officers or employees of the
Company or any of its affiliates. The purpose of the Compensation Committee is
to determine the level and composition of compensation that is sufficient to
attract and retain top quality executives for the Company.
The objectives of the Company's executive compensation practices are to: (1)
attract, reward and retain key executive talent and (2) to motivate executive
officers to perform to the best of their abilities and to achieve short-term and
long-term corporate objectives that will contribute to the overall goal of
enhancing shareholder value and policyholder security. To that end, compensation
comparisons are made to benchmark positions at other insurers in terms of
compensation levels and composition of the total compensation mix.
Under Section 162(m) of the Code, the Company is not allowed a federal income
tax deduction for compensation, under certain circumstances, paid to certain
executive officers to the extent that such compensation exceeds $1 million per
officer in any fiscal year. No officer of the Company has received compensation
in excess of $1 million in any fiscal year to date with the exception of Stephen
A. Milne, President and Chief Executive Officer of the Company, in 1999 and
1998. The Compensation Committee may consider adopting policies with respect to
this limitation on deductibility when appropriate.
The Compensation Committee reviewed the salary ranges and base salaries of the
four highest paid executives, including the Chief Executive Officer, in 1999.
The Compensation Committee has position descriptions for the four highest paid
executives of the Company, including the Chief Executive Officer, which define
the responsibilities and duties of each position. The position descriptions also
delineate the functional areas of accountability and the qualifications and
skills required to perform such responsibilities and duties. The Compensation
Committee then reviews the salary ranges for the Chief Executive Officer and the
other three highest paid executives, comparing the ranges to third party data
compiled for similar positions with other property and casualty and life
insurers. In reviewing the salary ranges for the four highest paid executives,
including the Chief Executive Officer, the Compensation Committee references
Sibson's Management Compensation Survey published annually by Sibson & Company,
Inc., which summarizes compensation data for more than 100 insurance companies.
The data is reported by position, company asset size and premium volume. The
unique aspects of each position, its duties and responsibilities, the effect on
the performance of the Company, the number of employees supervised directly and
other criteria are also considered in setting the base salaries. The
Compensation Committee also consulted data obtained from Towers Perrin, a
nationally recognized consulting firm with specific expertise in the insurance
industry, to make recommendations regarding executive compensation.
The level of compensation for each executive reflects his or her skills,
experience and job performance. Normally, base salary will not be less than the
minimum for the salary range established for each position. Executives with a
broader range of skills, experience and consistently high performance with the
Company may receive compensation above the midpoint for the established salary
range.
18
Compensation for the Chief Executive Officer consists primarily of salary,
annual incentive and long-term incentive payments and minor perquisites which
amount to less than 10% of the Chief Executive Officer's salary and bonus. The
Board of Directors approved adoption of an annual incentive plan and long-term
incentive plan for senior executives of the Company as recommended by the
Executive Committee at its meeting of March 11, 1997 (the "Annual Incentive
Plan" and the "Long-Term Incentive Plan," respectively). The purpose of the
Annual Incentive Plan is to promote the best interests of the Company while
enhancing shareholder value of the Company and to promote the attainment of
significant business objectives for the Company by basing a portion of the
executives' compensation on the attainment of both premium growth and
underwriting profitability goals. The annual incentive awards will be paid in
cash only.
Annual Incentive Plan target award levels, expressed as a percentage of base
salary, are established annually by the Compensation Committee. Payments under
the Annual Incentive Plan are based on a combination of individual executive
performance and the Company's performance.
The Long-Term Incentive Plan, which was approved by shareholders on April 27,
1998, for purposes of qualifying the plan as a performance-based plan under
Section 162(m) of the Code, is designed to maximize returns to shareholders by
linking executive compensation to the overall profitability of the Company.
Target award amounts, expressed as a percentage of base salary, are determined
by comparisons to peer companies and approved by the Compensation Committee.
Performance factors applicable to the Company, such as property and casualty
insurance loss ratios, investment portfolio returns, overall Company
profitability, as well as other factors are considered in evaluating the Chief
Executive Officer's performance. Such performance factors were considered in
approving Mr. Milne's 1999 compensation. Compensation of the next three most
highly compensated individuals is determined by the Compensation Committee and
is based upon the factors and processes enumerated, i.e., a determination of a
salary range based upon market data and evaluation of the executive with respect
to the executive's job description and his or her position within the salary
range.
Compensation of the next highest paid executives (other than the four highest
paid executives) is based upon the Company's established standard compensation
policies and is not determined by the Compensation Committee.
The Company's Executive Compensation Committee:
Peter B. Bartlett, Chairman
J. Ralph Borneman, Jr.
Harry H. Weil
Robert C. Wilburn
19
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of 2/29/00
(a) Shares beneficially owned directly or indirectly by all affiliates:
Name & Address Shares
of Beneficial Beneficially Percent of
Owner Owned Class
Erie Indemnity Company 2,043,900(1) 21.6%(1)
100 Erie Insurance Place Direct
Erie, PA 16530
Erie Insurance Exchange 5,035,652(1) 53.3%(1)
100 Erie Insurance Place Direct
Erie, PA 16530
(b) Shares beneficially owned directly or indirectly by all Directors and
Officers:
Name & Address Shares
of Beneficial Beneficially Percent of
Owner Owned Class
Samuel P. Black, III 132,397 1.40%
1091 Dutch Road
Fairview, PA 16415
J. Ralph Borneman 1,536 .02%
160 N. Funk Road
Boyertown, PA 19512
Patricia A. Goldman 100 --
30261/2Q Street, NW
Washington, DC 20007
Susan Hirt Hagen 154,782 1.64%
5727 Grubb Rd.
Erie, PA 16506
F. William Hirt 167,034 1.77%
3270 Kingston Court
Erie, PA 16506
Gwendolyn S. King 300 --
1506 Hamilton Street, NW
Washington, DC 20011
Stephen A. Milne 200 --
100 Culbertson Drive
Lake City, PA 16423
20
(b) Shares beneficially owned directly or indirectly by all Directors and
Officers:
Name & Address Shares
of Beneficial Beneficially Percent of
Owner Owned Class
John M. Petersen 92,141 .98%
124 Voyageur Dr.
Erie, PA 16505
Jan R. Van Gorder 75 --
6796 Manchester Beach Road
Fairview, PA 16415
Harry H. Weil 100 --
7 Foxwood Drive
Pittsburgh, PA 15238
Robert C. Wilburn 500 --
P.O. Box 376
Blairsville, PA 15717
John J. Brinling, Jr. 1,260 .01%
1522 Sumner Drive
Erie, PA 16505
Robert H. Dreyer 600 .01%
465 Hawthorne Trace
Fairview, PA 16415
Philip Alan Garcia 1,275 .01%
786 Stockbridge Drive
Erie, PA 16505
Douglas F. Ziegler 570 --
378 Ridgeview Drive
Erie, PA 16505
Officers and directors
as a group (15 persons) 552,870(2) 5.85%(2)
(1)The Exchange is a reciprocal insurance exchange controlled by its
subscribers, each of whom has designated Erie Indemnity Company as such
subscriber's attorney-in-fact for certain purposes, including Erie
Indemnity's holding of Common Stock of the Company. There are two H.O.
Hirt Trusts, one for the benefit of F. William Hirt and one for the
benefit of Susan Hirt Hagen. Each of the H.O. Hirt Trusts is the record
owner of 1,170 shares of Class B Common Stock, or 38.11% of the
outstanding shares of the Company's Class B Common Stock. The trustees
of the H.O. Hirt Trusts are F. William Hirt, Susan Hirt Hagen and
Banker's Trust Company of New York. Mr. Hirt and Mrs. Hagen, who are
brother and sister, are each the beneficial owner of 1,170 shares of
Class B Common Stock held by the H.O. Hirt Trusts. An additional 13.4%
of the Erie Indemnity Company voting stock is beneficially owned by
Samuel P. Black, III.
(2) Includes direct and indirect beneficial ownership and shares owned by
and with spouses.
(c) There are no contractual arrangements known to the Company which may result
in a change in control of the Company.
21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Directors Borneman and Black are officers and principal shareholders of
insurance agencies which receive insurance commissions in the ordinary
course of business from Erie Family Life and its affiliates in accordance
with the companies' standard commission schedules and agents' contracts.
Such payments made in 1999 to the agencies for commissions written on
insurance policies from the property and casualty affiliated insurers and
Erie Family Life Insurance Company amounted to $2,976,832 and $472,633 for
the Borneman and the Black insurance agencies, respectively. Of these
amounts, the Company paid commissions of $84,999 and $26,220 to the
Borneman and the Black insurance agencies, respectively.
Director Borneman, in his capacity as an insurance agent, placed a worker's
compensation insurance policy covering employees of the Company with
Fireman's Fund Insurance Company. Although director Borneman has received
no compensation to date in connection with the placement of that policy, in
the future he may be entitled to receive a commission from Fireman's Fund
in accordance with Fireman's Fund's standard commission schedules and
agents' contracts for placing that insurance policy.
John M. Petersen, a director and former President and Chief Executive
Officer, and previous Chief Investment Officer of the Erie Insurance Group
of Companies, who retired as an employee of the Company on December 31,
1995, entered into a consulting arrangement with the Company effective
January 2, 1996. Under the terms of the arrangement, the Company engaged
Mr. Petersen as a consultant to furnish the Company, the Erie Insurance
Exchange, and Erie Indemnity Company and its pension trust, with investment
services with respect to their investments in common stocks. As
compensation for services rendered by Mr. Petersen, a fee of .15 of 1
percent, on an annualized basis, of the total fair market value of the
common stocks under management, is paid to Mr. Petersen. The Company also
pays for all necessary and reasonable expenses related to Mr. Petersen's
consulting services performed under this arrangement. The compensation paid
to Mr. Petersen under this arrangement in 1999 by the Company, the Erie
Insurance Exchange, the Erie Indemnity Company, and the pension trust was
$100,049, $4,565,267, $137,688 and $141,767, respectively.
Director Bartlett is a partner of Brown Brothers Harriman & Co. ("Brown
Brothers"). During 1999, the Company and its affiliates invested
approximately $26,037,121 in various limited partnerships, of which Brown
Brothers through its Corporate Finance Division is the general partner,
and, as the general partner, was paid management fees by Partnerships, of
which $825,259 was the combined amount allocable to the Company, the Erie
Insurance Exchange and the Erie Indemnity Company, based upon their limited
partnership interests. The Company and its affiliates also purchased other
investments worth $19,800,000 through Brown Brothers, and commissions paid
Brown Brothers by the Company and its affiliates on these investments
amounted to $245,613. Director Bartlett has not and will not receive any
compensation from Brown Brothers with respect to any income earned by Brown
Brothers or its Corporate Finance Division from the management of the
investments by the Company and its affiliates in such limited partnerships
or from any of the commissions paid by the Company or its affiliates.
22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following financial statements of the Company and the report
of independent certified public accountants are incorporated herein by
reference to pages 30 through 43 in the Company's annual report to
shareholders for the year ended December 31, 1999.
Independent Auditors' Report
Statements of Financial Position - December 31, 1999 and 1998
Statements of Operations for the years ended December 31, 1999,
1998 and 1997
Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997
Statements of Shareholders' Equity for the years ended
December 31, 1999, 1998 and 1997
Notes to Financial Statements
(2) The following financial statement schedules are included in this
report on FORM 10-K:
Page
Independent Auditors' Report on Schedules 26
Schedule I - Summary of Investments other than
Investments in Related Parties 27
Schedule III - Supplementary Insurance Information 28
Schedule IV - Reinsurance 29
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and
therefore, have been omitted.
23
(3) Exhibits:
Exhibit
Number Description of Exhibit
3.1* Amended and Restated By-laws of Registrant
10.1** 1997 Annual Incentive Plan of Erie Indemnity Company
10.2** Erie Indemnity Company Long-Term Incentive Plan
10.3** Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and Stephen A. Milne
10.4** Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and Jan R. Van Gorder
10.5** Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and Philip A. Garcia
10.6** Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and John J. Brinling, Jr.
10.7 Employment Agreement effective June 30, 1999 by and
between Erie Indemnity Company and Jeffrey A. Ludrof
10.8 Employment Agreement effective December 15, 1999 by and
between Erie Indemnity Company and Douglas F. Ziegler
10.9 Addendum to Employment Agreement effective December 15,
1999 by and between Erie Indemnity Company and
Stephen A. Milne
10.10 Addendum to Employment Agreement effective December
15, 1999 by and between Erie Indemnity Company
and Jan R. Van Gorder
10.11 Addendum to Employment Agreement effective December
15, 1999 by and between Erie Indemnity Company
and Philip A. Garcia
10.12 Addendum to Employment Agreement effective December
15, 1999 by and between Erie Indemnity Company
and John J. Brinling
10.13 Addendum to Employment Agreement effective December
15, 1999 by and between Erie Indemnity Company
and Jeffrey A. Ludrof
13 1999 Annual Report to Shareholders. Reference is made to
the Annual Report furnished to the Commission, herewith.
27 Financial Data Schedule
- ------------------
* Such exhibit is incorporated by reference to the like titled exhibit
in the Registrant's Form 10-K Annual Report for the year ended
December 31, 1998 that was filed with the Commission on March 9, 1999.
** Such exhibit is incorporated by reference to the like titled exhibit
in the Registrant's Form 10-K Annual Report for the year ended
December 31, 1997 that was filed with the Commission on March 11,
1998.
All exhibits for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore,
have been omitted.
(b) No reports on Form 8-K have been filed or were required to be filed during
the fourth quarter ended December 31, 1999.
24
SIGNATURES
Pursuant to the requirements of Section 15(d) of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: March 7, 2000 ERIE FAMILY LIFE INSURANCE COMPANY
(Registrant)
Principal Officers
/s/ Stephen A. Milne
Stephen A. Milne, President and CEO
/s/ Jan R. Van Gorder
Jan R. Van Gorder, Executive Vice President, Secretary & General Counsel
/s/ Philip A. Garcia
Philip A. Garcia, Executive Vice President & CFO
/s/ Timothy G. NeCastro
Timothy G. NeCastro, Senior Vice President & Controller
Board of Directors
/s/ Peter B. Bartlett /s/ Martin J. Lippert
Peter B. Bartlett Martin J. Lippert
/s/ Samuel P. Black, III /s/ Stephen A. Milne
Samuel P. Black, III Stephen A. Milne
/s/ J. Ralph Borneman /s/ John M. Petersen
J. Ralph Borneman John M. Petersen
/s/ Patricia A. Goldman /s/ Jan R. Van Gorder
Patricia A. Goldman Jan R. Van Gorder
/s/ Harry H. Weil
Susan Hirt Hagen Harry H. Weil
/s/ F. William Hirt /s/ Robert C. Wilburn
F. William Hirt Robert C. Wilburn
/s/ Gwendolyn S. King
Gwendolyn S. King
25
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Shareholders
Erie Family Life Insurance Company
We have audited the statements of financial position of Erie Family Life
Insurance Company (Company) as of December 31, 1999 and 1998 and the related
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1999, as contained in the 1999
annual report, incorporated by reference in the annual report on Form 10-K for
the year ended December 31, 1999. In connection with our audits of the financial
statements, we also have audited the financial statement schedules, as listed in
the accompanying index. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Erie Family Life Insurance
Company as of December 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 1999
in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
/s/Brown Schwab Bergquist & Co.
Erie, Pennsylvania
February 11, 2000
26
SCHEDULE I - SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 1999
Cost or Amount at which
Amortized Market Shown in the
Type of Investment Cost Value Balance Sheet
- ----------------------------------------------------------------------------------------------------------------------------
Fixed Maturities Available-for-sale
U. S. Treasuries $ 4,585,535 $ 4,582,844 $ 4,582,844
U. S. Government Agency 4,804,139 4,818,964 4,818,964
States & Political Subdivisions 2,055,000 2,100,000 2,100,000
Special Revenue 6,859,827 7,079,506 7,079,506
Public Utilities 61,886,149 59,711,927 59,711,927
U. S. Banks, Trusts, and Insurance Companies 115,615,642 111,568,778 111,568,778
U. S. Industrial and Miscellaneous 396,128,081 382,309,479 382,309,479
Foreign Governments - Agency 2,991,409 2,880,330 2,880,330
Foreign Banks, Trusts, and Insurance Companies 9,980,619 9,537,300 9,537,300
Foreign Industrial and Miscellaneous 46,751,618 44,287,744 44,287,744
- ----------------------------------------------------------------------------------------------------------------------------
Total Fixed Maturities available-for-sale $ 651,658,019 $ 628,876,872 $ 628,876,872
- ----------------------------------------------------------------------------------------------------------------------------
Equity Securities
Common Stock:
U. S. Banks, Trusts and Insurance Companies $ 9,188,158 $ 10,776,392 $ 10,776,392
U. S. Industrial and Miscellaneous 50,646,155 71,682,130 71,682,130
Foreign Industrial and Miscellaneous 1,240,913 935,625 935,625
Non-Redeemable Preferred Stocks:
U. S. Banks, Trusts and Insurance Companies 25,889,215 24,349,150 24,349,150
U. S. Industrial and Miscellaneous 24,836,611 22,446,580 22,446,580
Foreign Banks, Trusts, and Insurance Companies 12,873,364 11,904,540 11,904,540
- ----------------------------------------------------------------------------------------------------------------------------
Total Equity Securities $ 124,674,416 $ 142,094,417 $ 142,094,417
- ----------------------------------------------------------------------------------------------------------------------------
Real Estate
Investment Property $ 1,458,588 $ 1,458,588 $ 1,458,588
Policy Loans 6,723,729 6,723,729 6,723,729
Mortgage Loans 9,974,967 9,974,967 9,974,967
Other Invested Assets 26,576,744 28,330,875 28,330,875
- ----------------------------------------------------------------------------------------------------------------------------
Total Investments $ 821,066,463 $ 817,459,448 $ 817,459,448
- ----------------------------------------------------------------------------------------------------------------------------
27
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
At December 31,
-------------------------------------------------------------
Deferred Future
Policy Policy Other
Acquisition Benefits & Unearned Policy
Segment Costs Deposits Premium Claims
- -----------------------------------------------------------------------------------------
1999
Ordinary Life Insurance $ 68,227,117 $ 163,615,744 $ 152,484 $ 1,095,052
Group Life Insurance 0 1,353,530 0 209,500
Annuities 9,361,203 569,218,451 0 0
Supplemental Contracts 0 580,693 0 0
- -----------------------------------------------------------------------------------------
Total $ 77,588,320 $ 734,768,418 $ 152,484 $ 1,304,552
- -----------------------------------------------------------------------------------------
1998
Ordinary Life Insurance $ 61,387,166 $ 144,849,922 $ 138,375 $ 1,594,030
Group Life Insurance 0 1,043,324 0 207,000
Annuities 9,529,094 524,122,492 0 0
Supplemental Contracts 0 607,094 0 0
- -----------------------------------------------------------------------------------------
Total $ 70,916,260 $670,622,832 $ 138,375 $ 1,801,030
- -----------------------------------------------------------------------------------------
1997
Ordinary Life Insurance $ 55,958,508 $ 127,064,469 $ 131,926 $ 1,839,677
Group Life Insurance 0 1,189,498 0 210,000
Annuities 8,608,577 489,444,701 0 0
Supplemental Contracts 0 876,054 0 0
- -----------------------------------------------------------------------------------------
Total $ 64,567,085 $ 618,574,722 $ 131,926 $ 2,049,677
- -----------------------------------------------------------------------------------------
28
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION (CONTINUED)
For the Years Ended December 31,
----------------------------------------------------------------------------
Amortization
Net Life & of Deferred Other
Policy Investment Annuity Acquisition Operating
Segment Revenues (a) Income Benefits Costs Expenses
- --------------------------------------------------------------------------------------------------------
1999
Ordinary Life Insurance $ 39,051,763 $ 18,233,337 $ 19,153,251 $ 4,285,692 $ 8,888,107
Group Life Insurance 2,629,179 83,209 1,884,469 0 684,489
Annuities 4,693 37,855,115 31,185,418 526,887 1,369,212
Supplemental Contracts 0 41,235 17,007 0 2,969
- --------------------------------------------------------------------------------------------------------
Total $ 41,685,635 $ 56,212,896 $ 52,240,145 $ 4,812,579 $ 10,944,777
- --------------------------------------------------------------------------------------------------------
1998
Ordinary Life Insurance $ 35,732,584 $ 16,128,825 $ 17,265,146 $ 4,147,159 $ 8,828,794
Group Life Insurance 2,501,243 75,545 834,674 0 623,339
Annuities 4,729 36,073,973 29,775,077 248,396 447,308
Supplemental Contracts 0 51,000 95,026 0 3,583
- --------------------------------------------------------------------------------------------------------
Total $ 38,238,556 $ 52,329,343 $ 47,969,923 $ 4,395,555 $ 9,903,024
- --------------------------------------------------------------------------------------------------------
1997
Ordinary Life Insurance $ 32,826,827 $ 14,659,150 $ 18,511,338 $ 3,607,634 $ 7,911,668
Group Life Insurance 2,363,002 82,350 1,367,179 0 590,861
Annuities 3,643 35,110,681 27,614,299 87,332 1,088,065
Supplemental Contracts 0 62,111 51,604 0 4,163
- --------------------------------------------------------------------------------------------------------
Total $ 35,193,472 $ 49,914,292 $ 47,544,420 $ 3,694,966 $ 9,594,757
- --------------------------------------------------------------------------------------------------------
(a) Net of reinsurance ceded
SCHEDULE IV - REINSURANCE
Percentage
Ceded to Assumed of Amount
Gross Other From Other Net Assumed
Amount Companies Companies Amount to Net
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 1999
Life Insurance in force $ 14,424,095,000 $ 1,425,913,000 $ 33,412,000 $ 13,031,594,000 0.26%
Premiums for the year
Life Insurance 42,972,242 3,920,479 0 39,051,763 0.00%
Group 2,517,605 0 116,267 2,633,872 4.41%
- ----------------------------------------------------------------------------------------------------------------------------
Total Premiums $ 45,489,847 $ 3,920,479 $ 116,267 $ 41,685,635 0.28%
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 1998
Life Insurance in force $ 13,235,757,000 $ 1,307,123,000 $ 32,878,000 $ 11,961,512,000 0.27%
Premiums for the year
Life Insurance 39,786,469 4,053,885 0 35,732,584 0.00%
Group 2,409,053 0 96,919 2,505,972 3.87%
- ----------------------------------------------------------------------------------------------------------------------------
Total Premiums $ 42,195,522 $ 4,053,885 $ 96,919 $ 38,238,556 0.25%
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 1997
Life Insurance in force $ 11,888,559,000 $ 1,167,467,000 $ 33,049,000 $ 10,754,141,000 0.31%
Premiums for the year
Life Insurance 36,587,421 3,760,594 0 32,826,827 0.00%
Group 2,257,474 0 109,171 2,366,645 4.61%
- ----------------------------------------------------------------------------------------------------------------------------
Total Premiums $ 38,844,895 $ 3,760,594 $ 109,171 $ 35,193,472 0.31%
- ----------------------------------------------------------------------------------------------------------------------------
29
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
Sequentially
Exhibit Numbered
Number Description of Exhibit Page
3.1* Amended and Restated By-laws of Registrant
10.1** 1997 Annual Incentive Plan of Erie Indemnity Company
10.2** Erie Indemnity Company Long-Term Incentive Plan
10.3** Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and Stephen A. Milne
10.4** Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and Jan R. Van Gorder
10.5** Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and Philip A. Garcia
10.6** Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and John J. Brinling, Jr.
10.7 Employment Agreement effective June 30, 1999 by and
between Erie Indemnity Company and Jeffrey A. Ludrof 31
10.8 Employment Agreement effective December 15, 1999 by and
between Erie Indemnity Company and Douglas F. Ziegler 46
10.9 Addendum to Employment Agreement effective December 15, 1999
by and between Erie Indemnity Company and Stephen A. Milne 61
10.10 Addendum to Employment Agreement effective December 15, 1999
by and between Erie Indemnity Company and Jan R. Van Gorder 62
10.11 Addendum to Employment Agreement effective December 15, 1999
by and between Erie Indemnity Company and Philip A. Garcia 63
10.12 Addendum to Employment Agreement effective December 15, 1999
by and between Erie Indemnity Company and John J. Brinling 64
10.13 Addendum to Employment Agreement effective December 15, 1999
by and between Erie Indemnity Company and Jeffrey A. Ludrof 65
13 1999 Annual Report to Shareholders. Reference is made
to the Annual Report furnished to the Commission, herewith. 66
27 Financial Data Schedule 98
* Such exhibit is incorporated by reference to the like titled exhibit in
the Registrant's Form 10-K Annual Report for the year ended December 31,
1998 that was filed with the Commission on March 9, 1999.
** Such exhibit is incorporated by reference to the like titled exhibit in
the Registrant's Form 10-K Annual Report for the year ended December 31,
1997 that was filed with the Commission on March 11, 1998.
30